James Bacchus (Author at Cato Institute)Individual Liberty, Free Markets, and Peacehttps://www.cato.org/
enamast@cato.org (Andrew Mast)webmaster@cato.org (Cato Webmaster)Wed, 14 Nov 2018 08:44:47 -0500Wed, 14 Nov 2018 15:39:12 -0500Disciplining China's Trade Practices at the WTO: How WTO Complaints Can Help Make China More Market-Orientedhttps://www.cato.org/publications/policy-analysis/disciplining-chinas-trade-practices-wto-how-wto-complaints-can-help
<p>The Trump administration has argued that the World Trade
Organization (WTO) has failed to address China’s “unfair”
trade practices. While it is true that China’s economic rise poses
a unique challenge to the world trading system, WTO dispute
settlement has more potential to address China’s practices than the
administration believes. If the Trump administration really does
want the Chinese economy to be more market-oriented, it should make
better use of WTO rules by filing more complaints against China.
While it is often accused of flouting the rules, China does a
reasonably good job of complying with WTO complaints brought
against it.</p>
<p>There are a number of policy areas where additional complaints
are possible. The U.S. Trade Representative’s Office (USTR) has
been gathering detailed information on China’s practices for years
and should file complaints on this basis, coordinating these
efforts with key allies. And for those areas that are not well
covered by WTO rules, such as state-owned enterprises, the United
States should work with these allies to develop new rules. So far,
the Trump administration has mainly relied on unilateral tariffs to
open the Chinese market, but these are likely to hurt Americans,
while not having much effect on Chinese trade practices. The
multilateral route is a better approach to disciplining these trade
practices and making China more market-oriented.</p>
https://www.cato.org/publications/policy-analysis/disciplining-chinas-trade-practices-wto-how-wto-complaints-can-helpThu, 15 Nov 2018 (All day)James Bacchus (Author at Cato Institute)James Bacchus, Simon Lester, Huan ZhuSaving the WTO's Appeals Processhttps://www.cato.org/blog/saving-wtos-appeals-process
<p>The continued intransigence of the Trump Administration in blackballing the appointment of new judges to the highest tribunal of world trade compels the 163 other countries that are members of the World Trade Organization to unite by resolving their international disputes in a way that cannot be stopped by the United States. The other, practical way should be the alternative means of trade dispute resolution currently available under Article 25 of the dispute settlement rules that are part of the WTO treaty – WTO arbitration.</p>
<p>The US refusal to join in the consensus needed to appoint and reappoint members of the WTO Appellate Body has now reduced the appellate tribunal from its full complement of seven judges down to the minimum of three judges required by the WTO treaty to hear an appeal. WTO member countries have an automatic right to appeal the legal rulings of <em>ad hoc</em> WTO panels under the treaty. If there are not three judges to hear an appeal, then the right to appeal will be denied and the WTO will be unable to adopt and enforce panel rulings.</p>
<p>Recently, nearly 90 percent of all panel reports have been appealed. Left with no opportunity to appeal, surely every country that loses before a panel will nevertheless seek to exercise its right to an appeal to guarantee that the verdict against it will not be enforceable. The WTO dispute settlement system will then be paralyzed. Moreover, if the rules cannot be upheld and enforced, why bother to comply with them or try to improve them? The very existence of the WTO will then be put at even graver risk than it faces now due to the illegal actions of Trump and his trade enforcers on other fronts in world trade.</p>
<p>If this stalemate between the US and the rest of the WTO continues, come December 11, 2019, the final terms of two of the three remaining members of the Appellate Body will end, and the tribunal will be reduced to only one member. Unlike the US, the other 163 countries in the WTO profess to see this situation as urgent. They also seem to assume they have until December 10, 2019, to resolve it. But one of the three remaining judges could at any time become ill, encounter a legal conflict, or decide to resign for family or other unrelated reasons. This could happen tomorrow.</p>
<p>The 163 other WTO members have endured nearly two years of largely stoic stonewalling by the United States due mainly to the US distress that the Appellate Body has had the temerity to do its job by upholding treaty rules on the use of dumping and other trade remedies that the US played a leading role in writing but now indignantly opposes under pressure from protectionist interests domestically and from within the Trump Administration.</p>
<p>The time has come for the other WTO members to stand up to Trump’s bullying and isolate the United States by employing the alternative of arbitration that has previously been largely ignored but is clearly permitted under the WTO treaty. Under Article 25, any two WTO members can choose to use arbitration when they have a trade dispute. They can select their own arbitrators. They can decide on their own procedures. They do not need prior approval to do so. They cannot be prevented from doing so by any other country. The judgment they get in arbitration will be as binding and as enforceable as any other judgment in WTO dispute settlement.</p>
<p>“Arbitration” is not defined in Article 25. Thus, countries choosing it as an alternative to the regular dispute settlement proceedings are free to decide simply to duplicate those proceedings. They can photocopy the regular dispute settlement rules and adopt them as their form of arbitration. This would have the practical effect of establishing a parallel dispute settlement system in the WTO that is identical to the current one – but that excludes the United States.</p>
<!--break--><p>
Thus, “arbitration” in the WTO need not follow the practices of private arbitration throughout the world. WTO arbitration can mostly be the current form of WTO dispute settlement by another name – but with one important difference. The countries that choose to engage in WTO arbitration can fill the empty seats on the Appellate Body. They can decide to have the <em>same</em> seven appellate jurists resolve all arbitral appeals – to make certain that appellate rulings are consistent. And they can do so without the participation or approval of the United States.</p>
<p>There need not be any prior agreement by the 163 other WTO members before proceeding with this alternative. It would take only a mutual decision by two countries engaged in a trade dispute to get started. Before establishing a panel, those two countries could agree beforehand to use arbitration for the entirety of their dispute proceedings. Or, at some point before they knew the outcome of the panel proceedings, they could agree to use arbitration solely for purposes of an appeal. Other countries could then emulate the first two countries as this alternative approach proved its worth.</p>
<p>Obviously, the other 163 countries would be unable to use the option of arbitration in any of their disputes with the United States. Given the current standoff, the US would be unlikely to agree to an arbitration in which four new judges were appointed to hear an appeal. Disputes involving the US would still be at risk of not being resolved. The US might be content with such an outcome if it loses before a panel, but what of the nearly 90 percent of the cases that the US takes to the WTO <em>and wins</em>? (As happens so often, President Trump’s “facts” about the outcome of WTO disputes involving the US are not facts.)</p>
<p>When the US lost before a panel, it would doubtless be delighted that the country that prevailed would not be able to enforce its win. And, when the US won before a panel, it might sometimes be able to bully the country that lost into complying with the panel ruling. So far they seem to have gotten away with it, but can Trump and his team truly hope to achieve all their trade goals by bullying? At last count, the United States is a party to about 40 trade disputes in the WTO. A number of them involve billions of dollars in trade annually.</p>
<p>By engaging in WTO arbitration of their own disputes, other WTO members will significantly diminish the impact of the US blackballing, and may also generate some leverage to move the United States toward some common ground on the central issue of the survival of the Appellate Body as the independent and impartial custodian of the rule of law in world trade. As it is, the 163 other countries have no leverage and can only watch as Donald Trump destroys the rules-based world trading system.</p>
https://www.cato.org/blog/saving-wtos-appeals-processFri, 12 Oct 2018 12:05 EDTJames Bacchus (Author at Cato Institute)James BacchusWTO Must Step in Before US-China Trade Feud Spirals out of Controlhttps://www.cato.org/publications/commentary/wto-must-step-us-china-trade-feud-spirals-out-control
<p>It is time for the World Trade Organization (WTO) to step in and
mediate the trade conflict between the United States and China that
threatens to spiral out of control.</p>
<p>With tariffs trumping tariffs, the on-again, off-again
negotiations between the two countries seem nowhere near a solution
to their trade tensions.</p>
<p>Even if the negotiations resume, it is uncertain how they can
progress, much less succeed, with the two sides so far apart and
with no neutral presence at the negotiating table devoted to trying
to bring the two countries together in a practical and workable
deal.</p>
<p>Before this commercial confrontation slows growth in both the
U.S. and China, before it spills over to cause grave harm to the
rest of the world economy and before it further unravels the
rule-based world trading system, the two disputing countries should
try an alternative means of finding common ground in a mutually
acceptable trade settlement — WTO mediation.</p>
<blockquote class="pullquote right">
<p class="pq-quote"><span class="pq-body">If Trump really wants a
trade solution, and not just a trade confrontation, what does he
have to lose by agreeing to mediation?</span></p>
</blockquote>
<p>Both countries continue to file complaints against each other in
the WTO, but neither country seems to have noticed a little-used
provision in Article 5 of the WTO Dispute Settlement Understanding
that offers mediation as another option for resolving their trade
disputes without having to survive a legal showdown over such
sensitive issues as the meaning of the national security defense
for trade restrictions and the extent of what Trump and his
acolytes see as their sovereign right to impose trade restrictions
unilaterally.</p>
<p>Under WTO rules, mediation “may be requested at any time
by any party to a dispute.” It may be a prelude to filing a
legal complaint in the WTO, or it may occur simultaneously with WTO
litigation.</p>
<p>The U.S. and China can agree to have their trade dispute
mediated by anyone they choose, and they can structure and conduct
the mediation in any way they choose. Throughout mediation, they
will retain all their sovereign rights to decide entirely for
themselves whether they wish to agree to new, mediated terms for an
overall trade settlement.</p>
<p>As it is, the two countries have no basis for a settlement and
no mutual understanding of what might comprise a settlement. Most
recently, the United States insisted on inclusion in the “new
NAFTA” of a provision that requires Mexico and Canada to give
the U.S. three months’ notice before it begins negotiations
with a non-market economy, i.e., China.</p>
<p><a href=
"https://www.rollcall.com/news/politics/trade-pact-trump-sees-trap-democrats-warning-china"
target="_blank" rel="noopener noreferrer">National Economic Council
Director Larry Kudlow was blunt</a>: “The continent as a
whole now stands united against what I’m going to call the
unfair trade practices by you know who — it starts with a ‘C’
and ends with an ‘A.’”</p>
<p>Given such talk by the Trump administration, how can China think
this impasse is about legitimate U.S. trade concerns and not about
a Trump desire to contain the rise of China?</p>
<p>The Chinese do not understand Trump is acting contrary to what
they (and many in the U.S.) see as the true American economic
interest, and Trump and his trade team do not understand why the
Chinese are refusing to yield despite intensifying U.S.
pressure.</p>
<p>Unclear is what Trump wants for the United States. Is he seeking
a lower bilateral trade deficit, structural changes in
China’s state-driven economic policies or a trade wall that
will sever the close ties between the U.S. and Chinese economies?
Does he want all of the above? Or does he even know what he
wants?</p>
<p>Equally unclear is what China is willing to give: minimal
modifications in the protectionist parts of Chinese industrial
policies or more managed trade by a shift in Chinese purchases from
other foreign suppliers to U.S. suppliers?</p>
<p>Or is China willing to manage less of its trade and do more to
fulfill its claimed aim of freeing and enabling market forces,
which would be by far the best way to lift the Chinese people up
the ladder of global competitiveness?</p>
<p>Trump seems to think bullying China will work. It won’t.
China seems to think the election of a Democratic Congress in
November will change the view of the U.S. government toward trade
with China. It won’t. Both must think again.</p>
<p>To some, it may seem naïve to suggest mediation amid such
mounting acrimony. But in these fraught times, it falls upon those
who still seek a rational world to suggest rational solutions.</p>
<p>The fact that the two countries seem unlikely to call on the WTO
for help is not evidence that they should not do so. Nor is it
evidence that they will not do so if all else fails.</p>
<p>As any trade negotiator knows, to reach an artful trade deal,
both sides in a negotiation must know what they absolutely must
have, know where they are willing to yield to get a deal and be
willing to search together for common ground that each can later
defend back home as in its own interests.</p>
<p>Mediation in the WTO can only help. A dispassionate voice can
help both countries put aside their emotions and pin down for each
other precisely what they each need to be able to take back home in
a trade deal.</p>
<p>A neutral voice can help them discover common ground. A neutral
voice with a global perspective can help them locate that common
ground in a place that does not tread on the treaty rights of the
world’s many other trading countries.</p>
<p>The Chinese insist they are fulfilling their WTO obligations.
They avow their support for free trade and for the WTO. Why not put
their support to this test? For his part, Trump seems indifferent
to WTO obligations.</p>
<p>He has expressed nothing but disdain for the WTO while seemingly
doing his best to dismantle it with his illegal tariffs and other
willful trade actions. But if, in U.S. trade with China, Trump
really wants a trade solution, and not just a trade confrontation,
what does he have to lose by agreeing to mediation?</p>
<p>If he is not happy with the results, he can always denounce the
mediator. </p>
https://www.cato.org/publications/commentary/wto-must-step-us-china-trade-feud-spirals-out-controlMon, 08 Oct 2018 09:05 EDTJames Bacchus (Author at Cato Institute)James BacchusTrump’s Attack on the Trade Regime: A Search for Solutions: Panel 3: Current State of U.S. Trade Politicshttps://www.cato.org/multimedia/events/trumps-attack-trade-regime-search-solutions-panel-3-current-state-us-trade
https://www.cato.org/multimedia/events/trumps-attack-trade-regime-search-solutions-panel-3-current-state-us-tradeFri, 05 Oct 2018 11:22 EDTJames Bacchus (Author at Cato Institute)James Bacchus, Simon Lester, Inu Manak, Daniel J. IkensonJames Bacchus discusses the WTO on BBC Radio 5’s Wake Up to Moneyhttps://www.cato.org/multimedia/media-highlights-radio/james-bacchus-discusses-wto-bbc-radio-5s-wake-money
https://www.cato.org/multimedia/media-highlights-radio/james-bacchus-discusses-wto-bbc-radio-5s-wake-moneyThu, 27 Sep 2018 11:56 EDTJames Bacchus (Author at Cato Institute)James BacchusHow to Solve the WTO Judicial Crisishttps://www.cato.org/blog/how-solve-wto-judicial-crisis
<p>The World Trade Organization is facing an existential crisis because of bullying by President Trump. That crisis can only be resolved if the United States and the 163 other members of the World Trade Organization negotiate a solution to what is most motivating these actions: American angst over the global rules for imposing anti-dumping and other trade remedies against unfair trade practices.</p>
<p>Central to Trump’s assault on the longstanding liberal international order in trade is his threat to grind the settlement of international trade disputes to a halt in the WTO. He is doing this by blocking the appointment and reappointment of the WTO judges whose rulings help resolve the trade disputes. U.S. intransigence may soon reduce the WTO Appellate Body from its full roster of seven judges down to the minimum of three needed to decide an appeal.</p>
<p>If the U.S. continues this strategy, the appellate court will be left with only three judges in September, and only one judge by December 2019—not enough to hear an appeal. Already slowed by the current shortage of judges, the rule-based dispute settlement system that has resolved more than 500 international trade disputes since its creation in 1995, and that has prevented an untold number of additional disputes, could come then to a standstill. </p>
<p>The impasse over judicial appointments in the WTO is ostensibly about what U.S. officials see as the supposed straying of WTO appellate judges from the strict bounds of their instructions into forbidden legal terrain in some of their rulings. Overlooked in the U.S. is the inconvenient fact that there are 163 other WTO members that have not professed to observe a pattern of judicial “over-reaching.”</p>
<p>Actually, the blockade is driven by the decades-long frustration of some within the U.S. with their failure to negotiate WTO rules that would assure the U.S. virtually unlimited latitude in imposing anti-dumping duties and other trade remedies on imported goods, and that would mandate that WTO judges largely defer in their rulings on such remedies to U.S. decisionmakers. </p>
<!--break--><p>Trump and his trade collaborators see America as possessing the sovereign right to impose anti-dumping tariffs and other remedies to alleged unfair trade practices with a domestic discretion akin to international legal impunity. This is not a new view—American industries challenged by foreign competitors and American protectionists representing those industries in the trade bar have long abused U.S. trade remedies to keep foreign competition out of the domestic market. Now they also hold power in the Trump Administration.</p>
<p>But other countries hold a different view. For decades, other countries, like American consumers and many American producers reliant on imports, have been repeatedly victimized by U.S. administrative agencies under the sway of protectionist interests. These agencies tend to rig U.S. domestic trade rules against foreign producers and then apply those rules in ways that discriminate against foreign goods under the legal pretense of fighting trade unfairness. This has happened for decades already with steel imports.</p>
<p>These protectionists forget that there is just one set of WTO trade remedy rules for all WTO members – not one set of rules for Americans and another set of rules for everyone else. Given this, do we want other countries to be able to use their own trade remedies laws to treat our exports the same way we treat theirs? And why should other countries eliminate their own trade abuses if we refuse to eliminate ours?</p>
<p>Since the establishment of the WTO in 1995, the main constraint on the unchecked use by the U.S. of trade remedies has been the WTO rules the U.S. helped negotiate and place in the WTO treaty – rules that have been consistently upheld by the Appellate Body. While the U.S. has (despite what Trump tells us) won about 86 percent of the cases it has brought against other countries before the WTO, it has lost about 75 percent of the cases other countries have brought against the U.S. (which is better than the global average of 84 percent)<strong>.</strong></p>
<p>Most of these losses have been in politically sensitive disputes over U.S. anti-dumping and other trade remedies. And many of them have been over repeated challenges to the same US trade actions because the U.S. has either refused to comply fully with adverse WTO rulings or has only pretended to comply.</p>
<p>In dumping in particular, the U.S. prefers to retain practices that find dumping where it does not exist and magnify the extent of dumping – and thus maximize the amount of anti-dumping duties – where dumping does exist. (In trade jargon, this is called “zeroing.” The U.S. has lost a long series of “zeroing” disputes.)</p>
<p>Fueling the U.S. foot-dragging is the belief that it has not gotten the extent of legal deference from WTO judges it thought it had secured in the WTO rules for applying anti-dumping duties. Americans who favor the unfettered use of anti-dumping measures feel they have been cheated.</p>
<p>Their legal problem is this:</p>
<p>A sentence the U.S. succeeded in putting in the WTO anti-dumping rules provides that if one of those rules “admits of more than one permissible interpretation,” then WTO judges must defer to the domestic decision “if it rests upon one of those permissible interpretations.” But the previous sentence, on which the U.S. also agreed, instructs the WTO judges to interpret the anti-dumping rules “in accordance with customary rules of interpretation of public international law.” And the use of those interpretative rules always results in a judicial finding of one ordinary meaning for international rules – never two.</p>
<p>Thus, the Appellate Body, in doing its job by following the rules of treaty interpretation it has been instructed by the WTO members to use in the WTO treaty, has never found that an anti-dumping rule “admits of more than one permissible interpretation,” and so it has never given the U.S. the extent of deference that it desires and still believes—wrongly—it negotiated.</p>
<p>Other WTO members are uncertain about how best to react to President Trump’s bullying on judicial appointments. In response, they must not yield to his intimidation by curtailing the jurisdiction of WTO judges by, in effect, allowing the U.S. to be the judge and the jury in its own cases. Instead, they should embrace a proposal that has already been made by the European Union. In exchange for an end to the U.S. blockade of WTO judicial appointments and U.S. agreement to WTO reforms that reinforce the indispensable independence and impartiality of WTO judges while also strengthening the whole WTO dispute settlement system, the 163 other WTO members should agree to negotiate anew on the true core of U.S. concern – the rules on dumping.</p>
<p>This does not mean acquiescing to the arrogant American ambition of having the international legal discretion to do whatever it chooses in applying trade remedies, while expecting other countries to do exactly as the U.S. wishes. It does mean resuming anti-dumping negotiations on the degree of deference owed to domestic authorities – and this time reaching an agreed solution in more precise wording of the anti-dumping rules in the WTO treaty – wording that has consistency and clarity. </p>
https://www.cato.org/blog/how-solve-wto-judicial-crisisMon, 06 Aug 2018 17:31 EDTJames Bacchus (Author at Cato Institute)James BacchusAmerica Needs the WTOhttps://www.cato.org/publications/commentary/america-needs-wto
<p>In addition to all else President Trump has been doing lately to
sow chaos in the international trading system, he is reportedly
considering pulling the U.S. out of the World Trade Organization.
Bent on preserving slim Republican congressional majorities in
November’s elections, the president may hope that a loud
goodbye to the WTO would reassure and revitalize his protectionist
political base.</p>
<p>Any WTO member can withdraw with six months’ notice. Mr.
Trump may attempt to withdraw the U.S. unilaterally, as he did with
the Paris climate accords—although courts might find that
such a move requires congressional approval. Mr. Trump could also
propose legislation, like the type that has been leaked to the
press, expanding his existing discretionary authority to ignore WTO
treaty obligations. Whether Congress would pass such legislation is
another matter.</p>
<p>But let’s say Mr. Trump managed to get his way and pull
the U.S. out of the WTO. The consequences for the world and U.S.
economies would be immense. Among them: diminished trade growth,
costly market and supply-chain disruptions, and the destruction of
jobs and profits, especially in import- and export-dependent U.S.
industries. The resulting trade barriers would compel some American
companies either to downsize or move offshore. The global economic
spiral set in motion by Mr. Trump’s reckless trade actions on
steel, aluminum, Canada, Mexico, China, and Europe would
accelerate.</p>
<blockquote class="pullquote right">
<p class="pq-quote"><span class="pq-body">Trump’s assault on the
organization could harm U.S. workers even more than his tariffs
have.</span></p>
</blockquote>
<p>If his trade brinkmanship so far is any indication, the
president seems willing to risk these dire results. But he may not
be aware that losing the benefits of membership in the WTO would
harm American businesses and workers even more than his recent
trade actions are harming them.</p>
<p>WTO membership provides goods and services produced in the U.S.
with protection against discrimination in foreign markets.
Nondiscrimination rules are the heart of the WTO trading system,
which currently applies in 164 countries and to 98% of all global
commerce. Should Mr. Trump cancel America’s membership, every
WTO member would be free under international law to discriminate
against American goods and services however they wished unless they
had a free-trade agreement with the U.S.</p>
<p>Moreover, all WTO members are required to grant one another
lower tariffs at WTO-agreed rates. Should the U.S. pull out,
American exporters would have to pay significantly higher tariffs
almost everywhere in the world. These higher tariffs would
boomerang back through global supply chains to diminish the
competitiveness of U.S. producers by increasing their end
prices.</p>
<p>Because tariffs are taxes, Mr. Trump is already imposing a
hidden tax increase in the form of higher prices on American
businesses and workers by provoking trade partners into retaliating
against his unilateral and illegal tariffs on steel and aluminum
with their own unilateral and illegal tariffs. If the U.S. left the
WTO, this disguised tax increase would be vastly higher. Whatever
boost the average American might have received from the tax cuts
enacted last year would vanish as prices soared.</p>
<p>By abandoning the WTO, the U.S. would also lose access to its
dispute-resolution process, thereby abandoning its only recourse
under international law for countering unfair trade practices. This
even though the most recent Economic Report of the President tells
us that “the United States has won 85.7 percent of the cases
it has initiated before the WTO since 1995.” That report is
signed by President Trump. Nevertheless, he relentlessly disparages
the WTO as rigged against the U.S.</p>
<p>Rather than relying on the international rule of law, the
president is attempting to bully other countries into accepting his
terms through tariffs and intimidation. Mr. Trump’s trade
bullying isn’t worthy of our country. Moreover, it
won’t work. When the U.S. represented nearly half of global
production in the wake of World War II, it had the power to bend
other countries to its will because they sorely needed U.S.
investment and goods. Today the world economy is shaped much
differently. The U.S. represents less than a quarter of the world
economy, and trade relationships are more fluid and diverse. Mr.
Trump and his boosters are vastly overestimating America’s
global economic leverage.</p>
<p>Pushing other countries around either won’t work at all or
it won’t work for long. Some of our trading partners have
started to push back against Mr. Trump’s lawless tariffs.
Others will surely follow. If Mr. Trump compounds his protectionist
crusade by abandoning the WTO, Americans will soon remember why we
created the rule-based trading system in the first place.</p>
<p>Instead of waging war on the WTO, the U.S. should help modernize
it by making it more effective in addressing digital trade,
services, subsidies, sustainability and intellectual property.
Internationally agreed rules for international trade—and a
process for resolving disputes about those rules—are an
indispensable pillar of national prosperity. This is true for all
countries, but especially a trading country the size of the
U.S.</p>
https://www.cato.org/publications/commentary/america-needs-wtoThu, 12 Jul 2018 09:23 EDTJames Bacchus (Author at Cato Institute)James BacchusUnilateral Tariffs vs. The Rule of Trade Law: The Case of Trade Secretshttps://www.cato.org/blog/unilateral-tariffs-vs-rule-trade-law-case-trade-secrets
<p>President Trump is seeking to apply tariffs to $50 billion of imports of some 1,300 products from China. He is targeting telecommunications and other high-technology sectors where he and others contend that American companies have, in effect, been forced to turn over their technology to Chinese partners – in some cases by revealing their trade secrets – in exchange for being allowed to do business in China and have access to the booming Chinese market. These tariffs are to be imposed outside the legal bounds of the WTO treaty through unilateral actions taken under Section 301 of the US Trade Act of 1974.</p>
<p>For many of these U.S. allegations about China, however, WTO obligations apply, and could provide more effective recourse. The various options under the WTO treaty for challenging Chinese trade practices will be explored in more detail in a forthcoming paper. This blog post focuses on one particular WTO obligation, covering trade secrets.</p>
<!--break--><p>The Trump administration has been raising concerns about China’s failure to protect trade secrets, but evidently ignored so far is Article 39 of the TRIPS Agreement in the WTO treaty, which establishes a WTO obligation for the “Protection of Undisclosed Information.”<a title="" name="_ednref1" href="#_edn1">[1]</a> The United States was among the leaders in advocating the inclusion of Article 39 in the TRIPS Agreement as part of the WTO treaty, but the United States has, to date, not initiated an action in WTO dispute settlement claiming a violation by China of this WTO obligation.</p>
<p>Article 39 is a major innovation in intellectual property protection under international law. It is “the first multilateral acknowledgement of the essential role that trade secrets play in industry”<a title="" name="_ednref2" href="#_edn2">[2]</a> and “the first multilateral agreement to explicitly require member countries to provide protection for… ‘trade secrets.’”<a title="" name="_ednref3" href="#_edn3">[3]</a> One of the accomplishments of the Uruguay Round of multilateral trade negotiations that concluded the WTO treaty and established the WTO, “’[t]he inclusion of trade secrets under the TRIPS has been hailed as a major innovation.”<a title="" name="_ednref4" href="#_edn4">[4]</a></p>
<p>This innovative WTO obligation offers an opportunity for challenging both the sufficiency of Chinese law and its application as part of a WTO complaint that China has not fulfilled its responsibility to enforce the protection of “undisclosed information.”</p>
<p>A specific focus of any WTO complaint by the United States relating to the failure of China to enforce the protection of trade secrets will be the continuing legal shortcomings of the Anti-Unfair Competition Law of China, which, as the Office of the United States Trade Representative has pointed out in its Special 301 Report for 2018, include “the overly narrow scope of covered actions and actors, the failure to address obstacles to injunctive relief, and the need to allow for evidentiary burden shifting in appropriate circumstances, in addition to other concerns.”<a title="" name="_ednref5" href="#_edn5">[5]</a> As USTR observes, in the 2017 update of the Anti-Unfair Competition Law, “despite long-term engagement from the United States and others – including from within China – China chose not to establish a stand-alone trade secrets law, and instead continued to seat important trade secrets provisions in the AUCL, an arrangement which contributes to definitional, conceptual, and practical shortcomings relating to trade secrets protection.”<a title="" name="_ednref6" href="#_edn6">[6]</a></p>
<p>Those who would rather apply the broad illegal brush of unilateral tariffs instead of the sharp legal stiletto of a precise claim in WTO dispute settlement will protest that Article 39 has never been tested in a WTO dispute. This is true. Yet similar protests were heard ten and fifteen years ago against bringing legal claims in WTO dispute settlement under the Agreement on Technical Barriers to Trade and the Agreement on the Application of Sanitary and Phytosanitary Measures, which have both since been proven to be reliable tools for upholding and enforcing WTO obligations. Not having been tested is not the same as having been tried and found wanting. Until proven otherwise, a legal claim of a failure to protect “undisclosed information” under the novel obligation in Article 39 of the TRIPS Agreement must be seen as a potentially positive means to the end of protecting trade secrets.</p>
<p>It will certainly be said as well that proving a legal claim of illegal infringement of undisclosed information under Article 39 in WTO dispute settlement will not be easily accomplished. This also is true. As the complainant, the United States will have the burden of proving this and all its legal claims against China in WTO dispute settlement. In challenging the enforcement of the Chinese law, the United States, with respect to each alleged infringement of a trade secret, will have to show to the satisfaction of a WTO panel that there is in fact “undisclosed information” comprising a trade secret. Moreover, the United States will have to prove to the panel each particular instance of the illegal infringement of specific trade secrets.</p>
<p>All of this will necessarily involve the accumulation and the submission of a veritable mountain of evidence – not easy in any case and certainly not easy in a case against a WTO Member with such an opaque and elusive economic and administrative system. Without question, China presents a formidable climb in the necessary fact gathering for winning a WTO case. But the United States has climbed this mountain successfully before in a series of complicated WTO complaints it has brought and won against China. Why is there so little confidence that the world-class legal advocates at USTR can climb it again?</p>
<p>Lastly, it will doubtless be insisted by those busy imposing unilateral tariffs that pursuing this claim and others in the WTO will take much time and much trouble and that, even if the United States prevails, a remedy is at best several years away. This likewise is true. But how much time and how much trouble are likely to result from the retaliatory legal actions and the retaliatory trade actions that are the certain consequence of tariffs imposed by the United States unilaterally and outside the legal framework of the WTO? Will US trade secrets be any better protected during the time it would take instead to seek and implement a WTO judgment under Article 39? And what other untold and untoward consequences will there be from an abandonment by the United States of America of the international rule of law?</p>
<hr align="left" width="33%" size="1">
<p><a title="" name="_edn1" href="#_ednref1">[1]</a> Article 39, TRIPS Agreement.</p>
<p><a title="" name="_edn2" href="#_ednref2">[2]</a> Francois Dessemontet, “Protection of Trade Secrets and Confidential Information,” para. 3, at <a href="https://www.unil.ch/files/live/sites/cedidac/files/Articles/Protection%20Trade%20Secrets.pdf">https://www.unil.ch/files/live/sites/cedidac/files/Articles/Protection%20Trade%20Secrets.pdf</a> .</p>
<p><a title="" name="_edn3" href="#_ednref3">[3]</a> Douglas C. Lippoldt and Mark F. Schulttz, “Trade Secrets, Innovation and the WTO,” Think Piece, E15 Expert Group on Trade and Innovation, E15 Initiative (Geneva: International Centre for Trade and Sustainable Development and World Economic Forum, August 2014), 1.</p>
<p><a title="" name="_edn4" href="#_ednref4">[4]</a> Francois Dessemontet, “Protection of Trade Secrets and Confidential Information,” para. 2.</p>
<p><a title="" name="_edn5" href="#_ednref5">[5]</a> Office of the United States Trade Representative, “2018 Special 301 Report” (April 27, 2018), 40.</p>
<p><a title="" name="_edn6" href="#_ednref6">[6]</a> Ibid.</p>
https://www.cato.org/blog/unilateral-tariffs-vs-rule-trade-law-case-trade-secretsFri, 11 May 2018 14:58 EDTJames Bacchus (Author at Cato Institute)James BacchusWas Buenos Aires the Beginning of the End or the End of the Beginning? The Future of the World Trade Organizationhttps://www.cato.org/publications/policy-analysis/was-buenos-aires-beginning-end-or-end-beginning-future-world-trade
<p>In all too many minds, the relevance of the World Trade
Organization (WTO) is much in doubt. The failure of the 11th
Ministerial Conference of the WTO last December in Buenos Aires to
complete any new multilateral or other agreements — or even
to agree on the traditional declaration concluding the conference
— has left many wondering if this is the beginning of the end
for the WTO.</p>
<p>Expectations were low in Buenos Aires, and the ministers
fulfilled those low expectations. Complicating matters, and further
stirring doubts, are the continued assaults of the Trump
administration on the WTO, both verbally and in the conduct of U.S.
trade policy. Traditional U.S. leadership at the WTO is missing, as
members struggle to find a way forward toward further trade
liberalization and international economic integration.</p>
<p>Yet, despite the seemingly bleak assessments, some see not the
beginning of the end for the WTO, but the end of the beginning.
There were clear signs on several fronts in Buenos Aires that WTO
members are ready to turn toward “plurilateral” solutions on trade
that could, in time, become fully multilateral solutions.
Multilateral trade agreements must always be the ultimate goal for
the WTO. But there is more than one way to get to multilateralism.
Starting with agreements among some, but not yet all, WTO members
and then gradually transforming them into fully global agreements
appears to be the most promising path to multilateralism in the
21st century.</p>
<p>Digital trade, services trade, fisheries subsidies,
environmental goods, investment facilitation, and other issues are
all ripe for negotiation and agreement. By taking a plurilateral
approach toward multilateralism, the members of the WTO can ensure
that this is the end of the beginning — and not the beginning
of the end — for the World Trade Organization.</p>
https://www.cato.org/publications/policy-analysis/was-buenos-aires-beginning-end-or-end-beginning-future-world-tradeTue, 08 May 2018 03:15 EDTJames Bacchus (Author at Cato Institute)James BacchusHow the World Trade Organization Can Curb China’s Intellectual Property Transgressionshttps://www.cato.org/blog/how-world-trade-organization-can-curb-chinas-intellectual-property-transgressions
<p>Quite rightly, President Donald Trump and his Administration are targeting the transgressions of China against US intellectual property rights in their unfolding trade strategy. But why not use the WTO rules that offer a real remedy for the United States without resorting to illegal unilateral action outside the WTO?</p>
<p>Seventeen years after China joined the WTO, China still falls considerably short of fulfilling its WTO obligations to protect intellectual property. About 70 percent of the software in use in China, valued at nearly $8.7 billion, is pirated. The annual cost to the US economy worldwide from pirated software, counterfeit goods, and the theft of trade secrets could be as high as $600 billion, with China at the top of the IP infringement list. China is the source of 87 percent of the counterfeit goods seized upon entry into the United States.</p>
<p>One possible response by the United States is the one the Trump Administration seems to be taking: slapping billions of dollars of tariffs on imports of more than 100 Chinese products through unilateral trade action. Given its protectionist predilections, taking this approach is surely tempting to the Trump Administration. Doing so will, however, harm American workers, businesses, and consumers, and contribute to further turmoil in the global economy.</p>
<!--break--><p>
The results will likely include retaliation by China against the goods and services of American companies and workers; lawful economic sanctions imposed by China on American exports to China after the US lost to China in WTO cases; the hidden tax of higher prices for American consumers; less competitiveness in the US market and in other markets for American companies that depend on Chinese imports as intermediate goods in production; and doubtless still more American and global economic landmines from the downward spiral of tit-for-tat in international trade confrontations.</p>
<p>These tariffs are not only self-defeating and counter-productive; they are also illegal under international law. Where an international dispute falls within the scope of coverage of the WTO treaty, taking unilateral action without first going to WTO dispute settlement for a legal ruling on whether there is a WTO violation is, in and of itself, a violation of the treaty. The WTO treaty establishes mandatory jurisdiction for the WTO dispute settlement system for all treaty-related disputes between and among WTO Members. The WTO Appellate Body has explained, “Article 23.1 of the (WTO Dispute Settlement Understanding) imposes a general obligation to redress a violation of obligations or other nullification or impairment of benefits under the covered agreements only by recourse to the rules and procedures of the DSU, and not through unilateral action.”</p>
<p>Thus, the United States is not permitted by the international rules to which it has long since agreed to be the judge and the jury in its own case. Imposing tariffs on Chinese products without first obtaining a WTO ruling that Chinese actions are inconsistent with China’s WTO obligations is a clear violation by the United States of its WTO obligations to China – as WTO jurists will doubtless rule when China responds to the tariffs by challenging the tariffs in the WTO.</p>
<p>Such a legal loss by the United States, with all its unforeseeable economic and geopolitical consequences, can be avoided while still confronting Chinese IP violations effectively. Before resorting to unilateral action outside the WTO and in violation of international law, the United States should take a closer look at the substantial rights it enjoys under the WTO treaty for protecting US intellectual property against abuse.</p>
<p>Potential remedies in the WTO exist and should not be ignored. These remedies can be enforced through the pressure of WTO economic sanctions. WTO rules do not yet cover all the irritants that must be addressed in US-China trade relations. Even so, instead of just concluding that there are no adequate remedies under WTO rules to help stop IP infringement, the United States should first try to use the remedies in rules we have already negotiated that bind China along with all other WTO Members.</p>
<p>A number of these rules have not yet been tested against China or any other country – which is not proof they will not work. Generally, when tried for the first time, WTO rules have been found to work, and, generally, when China has been found to be acting inconsistently with its WTO obligations, it has complied with WTO rulings. The actual extent of Chinese compliance with WTO judgments can be questioned; in some instances it is seen by some as only “paper compliance.” But whether any one WTO rule can in fact be enforced cannot be known if no WTO Member bothers to try to enforce it.</p>
<p>The WTO rules in the WTO Agreement on the Trade-related Aspects of Intellectual Property Rights – the so-called TRIPS Agreement – are unique among WTO rules because they impose affirmative obligations. Yet, this affirmative aspect of WTO intellectual property rules has been largely unexplored in WTO dispute settlement. In particular, WTO Members have so far refrained from challenging other WTO Members for failing to enforce intellectual property rights.</p>
<p>On enforcement, Article 41.1 of the TRIPS Agreement imposes an affirmative obligation on all WTO Members: “Members shall ensure that enforcement procedures… are available under their law so as to permit effective action against any act of infringement of intellectual property rights covered by this Agreement, including expeditious remedies to prevent infringements and remedies which constitute a deterrent to further infringements. These procedures shall be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse.”</p>
<p>Note that this “shall” be done by all WTO Members; it is mandatory for compliance with their WTO obligations. And yet what does this obligation mean by requiring that effective actions against infringements must be “available”? Is this obligation fulfilled by having sound laws on the books, as is generally the case with China? Or must those laws also be enforced effectively in practice, which is often not the case with China?</p>
<p>The Appellate Body has said that “making something <em>available</em> means making it ‘obtainable,’ putting it ‘within one’s reach’ and ‘at one’s disposal’ in a way that has sufficient form or efficacy.” Thus, simply having a law on the books is not enough. That law must have real force in the real world of commerce. This ruling by the Appellate Body related to the use of the word “available” in Article 42 of the TRIPS Agreement and to a legal claim seeking fair and equitable access to civil judicial procedures. Yet the same reasoning applies equally to the enforcement of substantive rights under Article 41.</p>
<p>In the past, the United States has challenged certain parts of the overall Chinese legal system for intellectual property protection – and successfully – in WTO dispute settlement. Despite its overall concerns about enforcement by China of US intellectual property rights, the United States has not, however, challenged the Chinese system <em>as a whole</em> in the WTO. Instead of indulging in the illegality of unilateral tariffs outside the legal framework of the WTO, the Trump Administration should initiate a comprehensive legal challenge in the WTO, not merely, as before, to the bits and pieces of particular Chinese IP enforcement, but rather <em>to the entirety of the Chinese IP enforcement system</em>.</p>
<p>To be sure, a systemic challenge by the United States to the application of all China’s inadequate measures relating to intellectual property protection would put the WTO dispute settlement system to a test. It would, what’s more, put both China and the United States to the test of their commitment to the WTO and, especially, to a rules-based world trading system.</p>
<p>As Trump’s trade lawyers will hasten to say, a systemic IP case against China in the WTO would also involve a perhaps unprecedented amount of fact-gathering. It would necessitate an outpouring of voluminous legal pleadings. It would, furthermore, force the WTO Members and the WTO jurists to face some fundamental questions about the rules-based trading system. Yet it could also provide the basis for fashioning a legal remedy that would in the end be mutually acceptable to both countries, and could therefore help prevent commercial conflict and reduce a significant obstacle to mutually beneficial US-China relations.</p>
<p>Going outside the WTO to try to resolve this trade dispute will undermine the WTO and thereby ultimately undermine US trade in goods and services – not to mention the protection of US intellectual property rights – throughout the world. Far better for the United States to play by the rules within the WTO – not least because it was the United States that insisted the most on having those rules when they were negotiated. Far better, too, for China to have its compliance with its WTO obligations judged by impartial and objective WTO jurists than by Donald Trump.</p>
<p>A positive solution should be sought by the Trump Administration through dispute resolution in the WTO over the systemic shortcomings of Chinese intellectual property protection before plunging into the commercial black hole of unilateral trade action.</p>
https://www.cato.org/blog/how-world-trade-organization-can-curb-chinas-intellectual-property-transgressionsThu, 22 Mar 2018 15:13 EDTJames Bacchus (Author at Cato Institute)James Bacchus